South Africa targets high earners in revenue boost, growth seen improving

South Africa will introduce a new personal income tax rate for high earners to help rein in the budget deficit, Finance Minister Pravin Gordhan said on Wednesday in a budget speech that forecast improving economic growth in coming years.

Treasury had flagged raising an extra 28 billion rand ($2 billion) through taxes this year, and the new top income tax rate of 45 percent for annual taxable incomes above 1.5 million rand was expected to raise more than half of the amount.

The rest of the amount would come from hikes in dividend withholding tax, fuel taxes and alcohol and tobacco excise duties.

“The tax proposal this year will raise an additional 28 billion rand by comparison with revenue estimates based on full adjustment of personal income tax and excise duties for inflation. The main tax proposals are, honourable members, a new top personal income tax rate of 45 per cent for those with taxable incomes above R1.5 million,” Gordhan said to Parliament.

The previous top marginal rate of 41 percent remains and would apply to annual incomes of between 708,311 rand and 1.5 million rand.

Gordhan further added that inequality remains to be a huge challenge for the country and thus needs to be addressed practically with urgency.

“Wealth remains highly concentrated. 95 percent of wealth is in the hands of 10 percent of the population. 35 percent of the labour force are unemployed or have given up hope of finding work. Despite our progress in education, over half of all children in grade 5 cannot yet read adequately in any language. More than half of all school-leavers each year enter the labour market without a senior certificate pass. 75 percent of these will still be unemployed five years later,” he said.

Economist at the at Nascence Advisory and Research, Xhanti Payi, said that overall the budget was good, especially with the announcement of the high personal income tax to increase revenue.

“I think it’s met some of the expectations so a lot of people for example were looking at tax increases and I think that we saw that fair and square especially seeing the upper-end marginal tax rate going up – so we were at 40 percent now we are all the way up to 45 percent. It was clear because we needed to raise more revenue given the growth environment in the country, so certainly we saw that,” he explained.